Perry Stoneman, Smart Energy Services & Utilities Global Sector Leader, and Philippe David, Leader of Digital Utilities Transformation, provide in this webinar the rationale for utilities to take a closer look at Capgemini Consulting’s Digital Utilities Transformation initiative.
We also share key research findings from the MIT Center for Digital Business on significant trends in digital management practices. Marcus Torchia, Research Manager from IDC Energy Insights participated as a guest speaker and provided business, regulatory conditions and predictions in the North American utilities space.
Marcus TorchiaSmart GridMay 7, 20132013 North America Utility Market Update andTop 10 Predictions
State of the Industry Business and Regulatory Conditions IDC Energy Insights 2013 Top Ten Predictions -North America4
Energy Consumption Down, Expected to Remain so inShort Term Electricity: Economic recession continues to affect growth Natural gas: Recession effects are partly offset by greater use of natural gas for powergeneration5Business and Regulatory Conditions
Natural Gas Overabundance; 2013 Gas Spot PricesRemain Low• Historic levels of gas in storage• Export business not expected to take off for several years• Customers are seeing lower bills…..6Business and Regulatory Conditions
Customer Satisfaction Mixed JD Powers 2012 ResidentialCustomer Satisfaction Survey Both gas and electric utility types due tolower bills However, satisfaction with powerquality and reliability – the largestfactor in satisfaction scores –declined by 13 points from 2011.7Business and Regulatory Conditions
Large Capital Project Investments are NeededGeneration: Aging plants at end of life Not economical due to low gas price relative to coal Higher maintenance costs for coal plants being cycledTransmission: Accommodation of renewable generation sources driven bystate RPS standardsEmissions: Proactive investments in scrubbers and other technology With elections over, more regulatory certainty andenforcementDistribution: Replacement projects for pipeline integrity Connection to shale gas resources Smart grid investments in distribution automation and smartmetering integration8Business and Regulatory Conditions
Utilities Requesting More Cost ReliefWhy? infrastructure investment, rising operation and maintenance costs, newrate mechanisms, replace loss in revenue A mix of rate case and rate adjustment requests 18+ states approved recovery of gas pipeline integrity through cost adjustments• Utilities asking, and getting, lessreturn on equity (ROE)• ROE 11.5% in 2000 > 9.5% 2012• PUC reluctant to approve increases intimes of economic hardshipSource: SNL Energy, 2012, as cited in EEI monthly rate casereport.9Business and Regulatory Conditions
Natural Disasters and Extreme Weather PutPressure on UtilitiesHurricane Sandy:• 8.7 million without power• Gas distribution shut off due to floodingTropical Storm Irene: “[Utility] performance in the aftermath of the 2011 storms wasdeficient and inadequate in the areas of outage and service restoration preparation,"- Connecticut Public Utilities Regulatory AuthoritySignificant U.S Grid Weather-Related Grid DisturbancesWith Inset of Non-Weather- vs. Weather-Related OutageComparisonSource: Electric Grid Disruptions and Extreme Weather. Seehttp://evanmills.lbl.gov/presentations/Mills-Grid-Disruptions-NCDC-3May2012.pdf.Notes: Historical “Grid Disturbance” data from the U.S. Department of Energy,Energy Information Administration. Form OE-417, “Electric Emergency Incident andDisturbance Report” (and before 1978 from the National Electric Reliability Council,Disturbance Analysis Working Group).10Business and Regulatory Conditions
Share of Intermittent Resources on the GridIncreasing PV industry enjoying stronggrowth in U.S. Overall PV penetration low,pockets of high penetration Concern about the impacts ofhigh penetration PV has utilitiestaking action Increase in wind generationhinges on the production taxcreditSource: Sunshot Vision Study, Department of Energy,February 201211Business and Regulatory Conditions
Where Does that Leave the Industry? Need to convince customers and regulators on rate increases for infrastructureinvestments. Expect close scrutiny of rate increase proposals and even operating andmaintenance expenses ‒ utilities must pay more attention to efficiency. Rate increases will fund capital investment in infrastructure, rather than IT. Building owners and operators have more options for energy savings if they cantake advantage of market pricing of gas and electricity Distribution operations need to plan for more dynamic demand/supply Next stage of smart grid roll-outs underway and still tackling NERC CriticalInfrastructure Protection (NERC CIP). Utility IT and Lines of Business working closer together to solve challenges andcreate business value with technology…..12Business and Regulatory Conditions
New Technology Playing an Evolving Role in UtilitiesBig Data and Analytics• Availability of technology pioneered by Google and AmazonMobility• Consumerization of IT and the desire of employees to use smart devicesCloud• Services available at lower cost, quick implementationSocial Business• The communication channel of the next generation13Business and Regulatory Conditions
North America Utility Industry 2013 Top 10 Predictions1. Utilities Will Make Outage Prevention/Readiness/Response aTop Priority2. Smart Electric Meter Shipments Will Fall Below 9M Units3. In Next 5 years, Consumer Spending Will Transform HomeEnergy Mgmt4. By 2017, 70% of AMI Systems Will Integrate to a DistributionControl System5. Utility Incentives will Drive $160M in Smart BuildingTechnology Spending6. Utilities Have Breathing Room as PEV Penetration is Lowerthan Expected7. Security Practices in 2013 and Beyond will Center on RiskManagement8. CIOs will Focus on Bringing Business Efficiencies through ITInitiatives9. Marketing & Customer Ops Will Increase Efforts in SocialBusiness10. North American IT Spending will Grow at 4.92% over the NextFive Years15
Questions and Future Requests…16Marcus Torchiamtorchia@idc.com508-988-7571
Webinar with IDCDigital Utilities Transformation May 7th, 2013
What is digital maturity?18Digital Intensity Transformation Management IntensityTechnology-enabled initiatives in:• Customer Experience• Internal OperationsLeadership capabilities including:• Vision• Governance• Engagement• IT-Business Relationships
Four levels of digital maturity19DigitalintensityTransformation management intensityCONSERVATIVES•Overarching digital vision exists, butmay be underdeveloped•Few advanced digital features, buttraditional capabilities may bemissing•Strong governance across silos•Taking active steps to build digitalskills and cultureBEGINNERS•Management skeptical of thebusiness value of advanced digitaltechnologies•May be carrying out someexperiments•Immature digital cultureFASHIONISTAS•Many advanced digital features(such as social, mobile) in silos•No overarching vision•Underdeveloped coordination•Digital culture may exist in silosDIGIRATI•Strong overarching digital vision•Good governance•Many digital initiatives generatingbusiness value in measurable ways•Strong digital culture
Digitally-mature companies have significantly better financial performance*20-11% +26%-24% +9%Basket of indicators:• EBIT Margin• Net Profit MarginProfitability-12% +12%-7% +7%Basket of indicators:• Tobin’s Q Ratio• Price / book ratioMarket Valuation* Average performance difference for firms in each quadrant versus the average performance of all large firms in the same industryfor the 184 publicly-traded companies in our sample
An Industry in profound transformationDrivers of change at play21EnergyTransitionNumber of connecteddevices (meters, grid sensors,actuators, home connected devices, smart phone, etc.)Digitally enabled extended event drivenbusiness processesBAU Utilities internalbusiness processesSmartinfrastructure& Internet ofthingsDigital UtilitiesNowRegulatory pushCost / Efficiency pressure“Decentralized generation, prosumers – customer & communities participation, energystorage, electric mobility, energy efficiency, passive house & building, islanding, micro-gridand tied-micro-grid, re-municipalization, active distribution network, cloud energy,disownership, etc."
The transformation of the industry will generate abundance of data comming from newsourcesSimplistic views of evolution of information and implications22Information Technology is not an issueYour business processes may be redesigned using IT as an accelerator, no more as a constraint!Human contextinformationET : EnergyTechnologiesKwhInternet ofthings : OTIT : InformationTechnology Big Data technologies allow you tohandle data with no limit at limitedcost Why shouldn’t you be able tohandle with Terabytes of data ofless? In-memory means performance isno more an issue Why not having BI analytics duringthe transactional Businessprocess? Cloud seams to be designed for BigData! Why waiting months to have newHardware?
Over-simplistic “AS IS” regarding IT in UtilitiesTwo separated worldsBusiness managers and IT managers far apartDataprocessingData PersistenceReal time Near Real time BatchScadaDatahistorianERPNostorageStorageGIS & Co
Future landscape leveraging key digital technologiesIntegration and move toward real time operationDataprocessingReal time Near Real time BatchScada/OTDatahistorianNostorageStorageERPBPMSIn MemoryStreamdataCEP*CEP = Complex Event ProcessingIntegrationOT/ITBusiness managers and IT managers hand in handData PersistenceBigDataInternet ofthings : OTHuman contextinformationET
All-Channel Experience is there not only for customerNew steps toward consumerization of ITCollaborationInternetRole of managers in a flat / extended organizations ?All Stakeholders experienceEmployeesexperienceCustomers&CommunitiesexperienceATAWADPhone / Tablet as front end of the cloudHtoMtoMOpen Data
New (not totally) ways at looking at IT system / Open Architecture « Phase 1 »26Orchestration & Integration LayerBPMS BRM …. MDMApplication & DataLayerERP CRM Billing….Personalisation &Interaction layerChannel service layerApps Call Web … MailAppsServicelayerDatamanagementAgilityExperience
New (not totally) ways at looking at IT system / Open Architecture « Phase 2 »27Orchestration & Integration LayerBPMS BRM …. MDMApplication & DataLayerERP CRM Billing….Personalisation &Interaction layerChannel service layerApps Call Web … MailAppsServicelayerDatamanagementAgilityExperienceData accessCollaboration / ExtendedBusiness processesNew channelsDATADATADATADATADATADATADATAHumancontextinformationET : EnergyTechnologiesInternetof things :OTIT :InformationTechnologyOpen datasourcesCEP / R
.. the Capgemini H-Model and the various options in delivery models28Orchestration & Integration LayerBPMS BRM …. MDMApplication & Data LayerERP CRM Billing….Personalisation &Interaction layerChannel service layerApps Call Web … MailApps ServicelayerDATADATADATADATADATADATADATAHuman contextinformationET : EnergyTechnologiesInternet ofthings : OTIT : InformationTechnologyOpen data sourcesGovernanceLayerConfigurationManagementBusinessServiceManagementData governanceIT ServiceManagementSecurityLayerAuthorisationAuthenticationLogging &Auditing,Reporting….SpeedValueIndustrialisationCostreductionAPPLICATIONSLIFE CYCLEDE-CAPEXIZATIONSaaSPaaSIaaSTime To Market
Transform to the power of digitalKey takeaways ...29Key words for success Digital customer (30 seconds to engage &3 seconds to pay) Personalization leads to loyalty Natural language, question driveninterface, Human to machine andmachine to machine Real time operation / Time is of value Proactivity Lean & ExtendedProcess Management(breaking up silos) Open / Outside-in (architecture,extended business process, etc.) Decapexization – disownership Simplicity, Simplicity, Simplicity... and transformational impacts Drastic reduction of middle managementand layers in organizations (Lean) Business Process assembled on the flybased on events (« Digital lean ») Analytics within the process (millisecondissues) Field operators to become mobileknowledge workers New capabilities : mathematicians forbusiness rule based / Data Scientistlanguage R Ecosystem – stakeholder management askey capabilities
We suggest to launch a Emergence phase to structure the way to go about becomingDigiratiSuggested content of the Emergence phase30Rassembling the pieces and making them fit together Confirm & launch3 day ASEScan Focus ActDIGITAL TRANSFORMATIONROADMAP(Vision, Organization, Governanceincluding IT-Business relationship,Change Management )Minimum 2 monthsBusinessdriven POCswith BCaseDigital“ArchitecturalModels”(open)DataGovernanceSpecificDigital roles(CDO?)AcquisitionandOrganizationof DigitalCapabilitiesPotentialBusinessImpact percore activityCulturalbarriers &CommunitiesmanagementExistingDigitalinitiatives /InnovationDisruptive ITdeliverymodelsDigitalawareness forDecisionmakersFrom BusinessviewFrom ITview